Navigating the Climate Finance-Dependency Trap

Developing nations are trapped in a cycle of debt due to climate finance structures, choosing between paying off loans or investing in essential services. While global banks propose solutions, the new climate finance goals lack clarity, favoring loans over grants that exacerbate financial burdens.

Dhaka, Dec 16 (Thomson Reuters Foundation) - As climate costs surge, developing countries face tough decisions: manage debt repayments or invest in key services like health and education. With 28% of climate finance as grants in 2022, many struggle under crippling debts due to mostly loan-based aid.

Developing nations, already burdened with high debt repayment ratios, find themselves in 'recovery traps.' A COP29 pledge of $300 billion annually by 2035 lacks clear delineation between grants and loans, holding back effective debt relief for vulnerable countries.

Efforts are being made through debt-for-climate swaps and concessional loans, yet the pace is insufficient. Institutions like the ADB are initiating positive measures, but to truly alleviate pressure, a reimagined climate finance system is necessary.

(With inputs from agencies.)